Thinking of buying a home? It pays to be prepared as you enter a housing market marked by volatility and low inventory – and that was true even before the COVID-19 pandemic struck. Whether you are a first-time homebuyer looking to step up to a larger home, or downsizing as you near retirement, there are questions you should ask yourself before beginning your house hunt.
First, some background. According to U.S. Census Bureau data, about nine percent of the nation’s population moved in 2020 – about 29.8 million people. Following a record year for home sales in 2020, the Wisconsin existing home market started the new year at record pace. Data from the Wisconsin REALTORS® Association (WRA), shows record-low inventories with just 2.1 months of available homes for sale in January, down from 3.5 months a year earlier. In addition, homes that are on the market are moving fast with average days on market down by 15.7% as compared to January 2020.
With inventories low and the housing market moving fast, it’s important to thoroughly prepare before conducting your search. Doing your homework in advance of your actual house hunt can help you get ready for the opportunities and challenges that come with this type of housing market. Before you scan for upcoming open houses or set up MLS alerts on your smartphone, remember that your Johnson Financial Group loan officer is here to help you at every stage of your search. Steve Greiff, SVP, Director of Mortgage, shares some common questions and answers to help you navigate the homebuying process.
Should I get pre-approved?
Most real estate and mortgage professionals will tell you that pre-approval is vital in today’s competitive housing market – some even require it before working with you on an offer to purchase. Our Johnson Financial Group mortgage loan officers will assist you with your loan application so you can conduct your home search with confidence. It’s important that you seek pre-approval – not just pre-qualification. The difference can be critical. Getting pre-qualified requires that you supply a lender with basic information including debt, income and assets. Pre-qualification does not include an analysis of your credit report or your actual ability to purchase a home. If you find a home you want to buy, or enter a bidding war with other buyers, having financing in place could give you an advantage with the seller.
Should I use a Real Estate Professional?
A real estate professional who knows the market and your desired location can save you time and money. With current inventories low and well-priced homes sometimes selling in hours or days, house hunters may opt to hire a buyer’s agent. Such agents are legally bound to work on their clients’ behalf, compared with a listing agent, who has a fiduciary responsibility only to the seller. If you decide to hire a buyer’s agent, interview several, check their qualifications and choose one you believe you can trust. Your agent can line up potential homes based on your preferences and price range, negotiate your purchase and help make sure you don’t pay too much for a home. They also get advance notice of new listings, giving you an opportunity to tour a home before others who are searching on their own. If you go it alone and find a home, especially one that is offered for sale privately by its owner, consult a trusted advisor, likely an attorney with expertise in real estate, to protect your interests and make sure the transaction is carried out properly.
How much house can I afford?
Your Johnson Financial Group loan officer can help you determine how much you can borrow and how much you should spend for a home – they’re not always the same amount. For example, just because you have been approved for a $350,000 mortgage doesn’t mean you should borrow that much. Consider the cost of the mortgage along with your other monthly expenses and your long-term financial goals.
How does my credit score factor into buying a home?
Credit scoring is a statistical method that lenders use to quickly and objectively assess the credit risk of a loan applicant. The score is a number that rates the likelihood you will pay back a loan. Scores range from 350 (high risk) to 850 (low risk). Some factors that may affect your score include, payment history, length of credit history, new credit accounts, inquiries and accounts in use. If you have a low credit score – generally mid-600s or below – a mortgage may be more difficult to obtain. Your mortgage loan officer can help you determine the best loan for your financial circumstance and answer any questions you have about your credit score. To learn more about your credit score and other home financing topics, visit our Home Financing Library.
Should I put contingencies on my offer?
With existing home inventories tight, you might be tempted to make an offer without contingencies. However, such conditions within your offer protect you against potentially costly unknowns. Among the best is making your offer contingent upon a home inspection, which can reveal problems that even the seller doesn’t know about. Plus, it can potentially give you the option of either walking away from the deal or renegotiating the price. You may also want to make your offer contingent on the home being appraised at or above the sale price; on the sale of your current home or upon your securing a mortgage loan, among other options. But keep in mind that in a hot housing market, a seller might accept a lower offer that comes in with only a home inspection contingency or one with no contingencies at all.
Taking the time to identify reliable, trustworthy professionals to guide you in your search for a home will pay off, especially in the current tight housing market. Ask friends, family and co-workers for recommendations or conduct your own interviews to find a qualified professional that you can trust.
A home is not an impulse purchase. Don’t be afraid to ask questions and do advance work. Once you start your house hunt, you can focus on locations, type and size of home and your other preferences, knowing that you’ve laid the groundwork for your ultimate purchase.
Johnson Financial Group mortgage loan officers are poised to help you before, during and after your purchase to make your house hunt and transition to your new home as smooth and enjoyable as possible for you and your family.